The UK “premium lifestyle” clothing, footwear and accessories market

PwC Strategy

February 2016

The UK “premium lifestyle” clothing, footwear and accessories market

PwC

February 2016

Important notice

2The UK “premium lifestyle” market

This document has been made publicly available for the purposes of general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this document without obtaining specific professional advice.

Information in this document is obtained or derived from a variety of sources. PwC has not sought to establish the reliability of those sources or verify all of the information so provided. No representation or warranty of any kind (whether express or implied) is given by PwC to any person as to the accuracy or completeness of the report, and, to the extent permitted by law, PwC, its members, employees and agents do not accept or assume any liability, responsibility or duty of care for any consequences of anyone else acting, or refraining to act, in reliance on the information contained in this document or for any decision based on it.

PwC

February 2016

The UK “premium lifestyle” clothing, footwear and accessories market


• The UK “premium lifestyle” segment of the clothing, footwear and accessories market contains brands characterised by a strong brand ethos that can be stretched across multiple product categories and channels, generating customer affinity and loyalty

• The “premium lifestyle” market was estimated to be worth c.£2.7bn in 2014, and has been outperforming the overall clothing, footwear and accessories market in the UK

• PwC has modelled growth in the segment of 6.6% p.a. between 2014 and 2020…

• …with growth likely to be driven by a number of factors, including:

– Ongoing polarisation in the UK clothing market both in terms of price and fashion

– The shift to more casual attire, both at work, but also at more formal ‘dress-up’ events

– Consumers’ desires for brands to provide a sense of identity and belonging

– Growth of online shopping and social media

– New international entrants, as well as smaller UK brands scaling

PwC

February 2016

Forecast

The UK clothing, footwear and accessories market is currently estimated to be worth c.£50bn and is forecast to grow at c.4.5% p.a. between 2015 and 2020


Note: Numbers may not add up due to rounding 1Mintel market forecasts exclude footwear

Source: Verdict (2015), Euromonitor (2016), Mintel (2015)

• The overall clothing, footwear and accessories market has grown steadily between 2009 and 2015, with menswear and womenswear outperforming other categories

• The market is forecast to grow at an increased rate, driven primarily by volume growth

– Verdict’s 2015-2020 forecast growth of 4.5% p.a. for the overall market is ahead of other sources, Euromonitor (2.2% p.a.) and Mintel1 (3.7% p.a.)

• Menswear expected to outgrow other segments of the market, driven by brands and retailers’ investment in their menswear offering

• Niche ranges are expected to drive incremental growth in womenswear, including plus-size, petite, tall and maternity clothing

17.4 18.3 18.9 19.3 19.2 20.2 20.8 21.4 22.0 22.8 23.7 24.7 25.9 27.3 28.8 30.3

8.5 8.7

9.0 9.1 9.0 9.4 9.7 9.9 10.1

10.4 10.8

11.3 11.9

12.6 13.3

14.0

4.3 4.4

4.5 4.6 4.6 4.7

4.8 4.9

5.0 5.1

5.3 5.4

5.5

5.7

5.8

6.0

6.2 6.3

6.6 6.7 6.6 6.8

7.0 7.2

7.3 7.5

7.7 7.9

8.2

8.5

8.8

9.1

2.1 2.2

2.3 2.4 2.5

2.6 2.7

2.7 2.8

2.9 2.9

3.0

3.2

3.3

3.4

3.5

38.5 39.8

41.3 42.2 41.9

43.8 45.0

46.1 47.2

48.6 50.4

52.4

54.7

57.4

60.1

62.9

0

10

20

30

40

50

60

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

£b

n

UK clothing, footwear and accessories market, 2005-2020 (nominal)

Total

Accessories

Footwear

Childrenswear

Menswear

Womenswear

’05-’08 ‘08-’09 ‘09-’15 ‘15-’20

3.1% (0.7%) 3.1% 4.5%

6.0% 3.1% 2.6% 3.6%

2.6% (1.8%) 2.6% 3.4%

2.4% (0.1%) 2.1% 2.6%

2.2% (1.3%) 3.1% 5.3%

3.5% (0.6%) 3.6% 5.0%

CAGR

PwC

February 2016

ForecastForecast

The online channel is expected to continue to take share from traditional channels and is forecast to account for c.29% of the market by 2020


The UK clothing, accessories and footwear market has historically been dominated by clothing specialists, with

limited change in channel mix expected

However, the proportion of online sales has risen significantly, and is expected to rise to 29% by 2020

Note: “Other” captures sales for variety stores, second hand stores and street markets

Source: Verdict (2015)

71.6% 71.4% 68.7%

8.5% 8.7%9.7%

8.0% 8.9% 9.9%

7.4% 7.4% 8.5%

4.5% 3.6% 3.2%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2010 2015 2020

% o

f to

tal

sale

s

UK clothing, footwear and accessories market channel mix, 2010-2020

Other

Departmentstores

Grocers

Generalmerchandisers

Specialists

£44bn £50bn £63bn

90.7%

80.0%

71.2%

9.3%

20.0%

28.8%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2010 2015 2020

% o

f to

tal

sale

s

UK clothing, footwear and accessories market channel mix, 2010-2020

Online

Offline

£44bn £50bn £63bn

PwC

February 2016

Market growth is expected to be driven by rising disposable income, improving consumer confidence and growth in consumer sub-segments


UK clothing, footwear and accessories market drivers

Future impact (15-20)

Key: PositiveNegative

Historical impact (12-15)

Drivers of the clothing, footwear and accessories market value

Rising disposable income and consumer

confidence

• The clothing market suffered a decline during the recession but has since recovered

• The UK macro-economic outlook appears positive, with rising disposable incomes and consumer confidence driving discretionary spending, which should support further growth in spend on clothing, footwear and accessories

Shift towards spending on experiences

• Following a period of high clothing inflation (2010-12), price growth has slowed

• Forecast growth in the clothing and footwear market is primarily expected to be volume driven, with deflation expected from 2018 onwards, driven by lower supply chain costs and discounting by mass market brands

Clothing price deflation

• While consumer confidence and discretionary spending continue to increase, consumers are looking to focus their spending more on experiences (e.g. holidays) rather than shopping

• In addition, consumers prioritising spending on the home (e.g. paying down mortgages, home improvements)

• This is likely to put pressure on spending on clothing, footwear and accessories

Clothing retailer innovation

• UK high street retailers are looking for new sources of growth including:

- New categories

- New fascias

- New concepts

- New channels

- New partnerships

• Retailers are therefore generating more awareness to drive footfall and traffic, which is growing the overall market

PwC

February 2016

Forecast

Forecast growth of the UK economy and increased consumer confidence supports growth in the market going forward


(40)

(35)

(30)

(25)

(20)

(15)

(10)

(5)

0

5

10

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Co

ns

um

er

co

nfi

den

ce in

de

x

Monthly consumer confidence index, 2005 (Jan) - 2016 (Jan)

Source: Verdict (2015), ONS (2015), HM Treasury (2015), GfK (2016)

Historically, the UK clothing, accessories and footwear market has moved in line with the economy

Consumer confidence has reached pre-recessionary levels

(3%)

(2%)

(1%)

0%

1%

2%

3%

4%

5%

6%

7%

2006 2008 2010 2012 2014 2016 2018 2020

Y-o

-Y c

ha

ng

e (

%)

Nominal GDP vs. Nominal consumer spending vs. UK Clothing, accessories and footwear market, 2006-2020

Nominal GDP

Nominal Consumer Spending

UK clothing, accessories andfootwear

Rising disposable income and consumer confidence

PwC

February 2016

While consumer confidence and discretionary spending continue to increase, consumers are looking to focus their spending more on experiences, which may put pressure on clothing spend


18%

17%

11%

7%

6%

4%

4%

4%

4%

3%

3%

3%

2%

2%

Savings and investments

Main holiday

Improving home

Credit card / loan repayment

Other leisure travel

Grocery shopping

Mortgage repayments

Clothing, shoes, accessories

Technology

Transport

‘Big ticket items’

Eating out

Going out'

Baby / children related expenditure

If your financial situation improves, which of the following categories would you be most likely to spend more on? (n=2,051)

Source: PwC Survey – Annual Retail Briefing (Dec, 2015), Press

Financial obligations

Experiences

Products

Life necessities

• During the recession consumers cut back on leisure spend, but this spend is now a priority

• This has been supported by technological developments that have improved consumers’ access to experiences (e.g. the growth of the sharing economy)

- Platforms such as AirBnB(holidays), Uber (transport), Just Eat (food delivery) and Netflix (entertainment) have made spend on entertainment easier and in some cases more affordable

• The growth of social media sites (e.g. Facebook, Instagram and Snapchat) has allowed consumers to share their experiences more widely, in turn creating more demand for experience to share

Shift towards spendingon experiences

PwC

February 2016

Forecast

Market growth is primarily expected to be volume driven, with deflation expected from 2018 onwards


Source: Verdict (2015)

(4%)

(3%)

(2%)

(1%)

0%

1%

2%

3%

4%

5%

6%

7%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Y-o

-Y g

row

th (

%)

UK clothing, accessories and footwear market growth, by price and volume, 2005-2020

Total market growth Inflation/deflation Volume

Inflation driven by rising input costs and manufacturing cost

increases in China

Lower inflation and eventual deflation driven by declining

supply chain costs and discounting by mass market brands

Clothing price deflation

PwC

February 2016

UK high street retailers are looking to innovate their proposition as they look for new sources of growth


Clothing retailer innovation

Overview of UK high street retailers’ strategies to drive growth

Retailers are extending into

new categories…

…opening new fascias…

…developing new concepts…

…entering new channels…

…and forming new

partnerships

Source: Trade Press, Retail Week, Verdict

Men's BeautyActivewear

Launched in Nordstrom and

Selfridges

Virtual pop-up “shopping walls” that consumers can engage with

via Window Shopping app

Announced the openings of 6 concessions in John Lewis after testing

the concept with a pop up store

Jigsaw Duke St. Emporium combines shopping, coffee and

culture

Oasis flagship store in Tottenham Court Road has a café and beauty

station

Rihanna designed two collections inspired by her personal style for

River Island

Launch of Burberry dedicated music channel

on Apple streaming

Kate Moss has designed multiple collections for Top Shop, with the first

in 2007

John Lewis at the Bullring in Birmingham features a coffee shop,

food emporium and beauty salon

PwC

February 2016

The “premium lifestyle” segment of the market contains brands characterised by a strong brand ethos that can be stretched across multiple product categories and channels, generating customer affinity and loyalty


Strong brand ethos

Premium lifestyle brands are unified by a distinctive brand

and signature handwriting that is recognised by customers

Multiple product categories and channels

The strong brand ethos enables premium lifestyle brands to

stretch across multiple categories (e.g. menswear,

womenswear, childrenswear, footwear, accessories, home) and multiple channels (e.g. stores, 3rd party channels,

events)

Customer affinityand loyalty

Premium lifestyle brands are front of mind, featuring high on consumers’ shopping repertoire.

As a result, customers remain loyal, shopping with the brand

for many years

Overview of the UK “premium lifestyle” segment

Source: Company Websites

Illustrative

Clothing heritage Single product heritageAccessories and

homeware heritage

PwC

February 2016

1.0

1.31.4

1.61.8

1.9

0.4

0.5

0.6

0.6

0.7

0.7

1.4

1.8

2.0

2.3

2.5

2.7

0

0.5

1.0

1.5

2.0

2.5

3.0

2009 2010 2011 2012 2013 2014

UK

bra

nd

sale

s (

£ b

n)

PwC's estimate of the UK "premium lifestyle" clothing market, 2009-2014

Estimatedwholesalerevenuewith retailmarkup

Retailrevenue

The UK “premium lifestyle” clothing market was estimated to be worth c.£2.7bn in 2014, and has been increasing market share of the overall clothing, accessories and footwear market


Note: Numbers may not add up due to rounding

Source: Verdict, Company Accounts, PwC Analysis

3.3% 4.0% 4.5% 4.9% 5.2% 5.5%

Premium lifestyle as a % of UK clothing, footwear & accessories market

Segment sizing methodology:

• PwC has estimated the size of the UK premium lifestyle segment based on the ‘brand sales’ of 21 selected brands:

• For clothing specialists: Given the broad mix of operating models across these players, where some brands have a large wholesale presence, PwC has estimated ‘brand sales’ to give a more realistic size for the overall segment at consumer prices

– A retail multiple of 2.5 (based on PwC experience) has been applied to the wholesale revenue of selected brands to estimate the brand sales

– Where there is no public information on wholesale revenue, estimates have been applied

• For non-clothing specialists: Given that these brands operate in the premium lifestyle segment, including Cath Kidston, Oliver Bonas and Laura Ashley, we have estimated the share of clothing to size a like-for-like market

CAGR 13.8%

PwC

February 2016

Forecast

1.4

1.8

2.0

2.3

2.5

2.7

2.9

3.1

3.3

3.5

3.7

3.9

0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

UK

bra

nd

sale

s (

£ b

n)

UK "premium lifestyle" clothing market forecast, 2009-2020

PwC has modelled growth in the “premium lifestyle” segment of 6.6% p.a. between 2014 and 2020, with a slower growth rate expected as the market evolves…


CAGR 13.8%

CAGR 6.6%

YoY Growth 18.5% 25.7% 15.2% 11.5% 8.9% 8.6% 8.0% 7.4% 6.9% 6.6% 5.7% 4.8%

Premium lifestyle as a % of UK clothing

3.3% 4.0% 4.5% 4.9% 5.2% 5.5% 5.7% 5.9% 6.0% 6.1% 6.2% 6.2%

Source: Verdict, Company Accounts, PwC Analysis

PwC

February 2016

…driven by consumers’ attitudes towards clothing and brands’ ability to engage with their customers


UK “premium lifestyle” market drivers Key: PositiveNegative

Future impact (15-20)

Historical impact (12-15)

“Premium lifestyle” market value

Market polarisation

• The performance of mid-market retailers (e.g. M&S) has been impacted by the outperformance of value specialists (e.g. H&M and Primark)

• Similarly, luxury brands have continued to gain share, as consumers looks to purchase investment pieces

• This polarisation has created a gap for high quality yet affordable brands, which is likely to continue, albeit at a slightly slower rate

Casualisation

• The premium lifestyle market has benefitted from the shift to more casual attire, both at work, but also at more formal ‘dress-up’ events

• This has expanded the range of occasions where premium lifestyle brands’ clothing is appropriate

• Casualisation is set to continue, with casualwear becoming acceptable across more occasions

Brand affinity

• Consumers are increasingly looking towards brands to provide a sense of identity and belonging

• This has contributed to the growth of premium lifestyle brands, with consumers buying into a brand with a particular heritage/theme, and therefore buying products from across multiple categories, which is likely to continue

Brand engagement

• The growth of online shopping and social media and innovation on in-store experience have enabled brands to build awareness and engage with their customers more regularly. This is important for premium lifestyle brands, where brand identity is key

• This has helped to establish premium lifestyle as a distinct segment in the clothing market and is likely to continue to do so

New entrants

• A number of US and European retailers are beginning to enter the UK market (e.g. Lululemon, Tory Burch, Kate Spade)

• Smaller UK brands are also scaling quickly (e.g. Rapha, Oliver Bonas)

• This is likely to grow the premium lifestyle market further

PwC

February 2016

There is ongoing polarisation in the UK clothing market both in terms of price and fashion, which has supported the growth of the premium lifestyle segment


Premium

Value

Lifestyle

Fast fashion/

fashion-led

Brand positioning of selected clothing brands

Mid-market brands

Polarisation in fashion

ILLUSTRATIVE

Po

lar

isa

tio

n i

n p

ric

e

Note: 1CAGR’s shown reflect financial calendar years; GAP/French Connection revenues are Europe segment (no further split available), MS revenue is UK General Merchandise revenue only

Source: Company accounts, Annual reports

Polarisation in price and fashion has created a gap in the market as mid-market retailers focus more on value and

fashion offers...

...which has allowed premium lifestyle brands to grow, establishing this as a distinct segment

Market polarisation

Premium lifestyle

Fashion-led

Value

Mid-market

33%

23%

18%

14%

11% 10% 10% 8%

6% 5% 4% 3%

(1%) (2%)

(10%)(15%)

(10%)

(5%)

0%

5%

10%

15%

20%

25%

30%

35%

40%

Se

asalt

Te

d B

aker

Jou

les

White S

tuff

H&

M

Prim

ark

Cre

w

Fa

t F

ace

Za

ra

Next

Gap

Bo

den

M&

S

BH

S

Fre

nch

Conne

ctio

n

CA

GR

12-1

4

UK Revenue growth of selected clothing retailers1,2012-14

PwC

February 2016

UK “premium lifestyle” brands have been able to stretch across categories, benefitting from customer affinity, to drive incremental sales


Brand affinity

Examples of “premium lifestyle” brands’ stretch across categories

Source: Retail Week, Company websites, Trade press

ILLUSTRATIVE TIMELINE

Mens and womenswear

Childrenswearand footwear

Fragrances and sunglasses

Jewellery

Bicycles

Services (e.g. haircuts, shaving)

Sportswear

AccessoriesBooks and

photographs

Skincare Bicycle hire

Holidays Coffee shops

Homeware

Electronics

PwC

February 2016

`

Premium lifestyle brands have benefitted from the growth of internet shopping and social media, which has helped them to build customer engagement, loyalty and affinity online


A number of premium lifestyle brands are using content on their

website to inspire customers…

…as well as building engagement across social media platforms…

…and being featured onfashion and lifestyle blogs

Source: Company websites, Trade press

Brand engagement

PwC

February 2016

New premium lifestyle entrants, and the growth of smaller brands, is likely to support volume growth


Lu

lule

mo

n

Source: Company websites, Company accounts

StoreRoll 12-14

11 23Operates through pop-up stores

and online only

J.

Cr

ew

Large international premium lifestyle brandshave begun to enter the UK market…

Smaller UK brands have started to scale quickly,growing market volumes

• Lululemon is a leading US lifestyle brands with an ethos focused on self-improvement and experiences to reach personal goals. Yoga remains at the core of the brand

• The company entered the UK in 2012 with a London store

• The brand now has five stores in London and one in Edinburgh, as well as four showrooms (Glasgow, Manchester, Bath, Guildford)

• 28 UK partners offer products in gyms, yoga studios and wellness centres

• J.Crew is an American lifestyle brand that stands for the perfect mix of classic styles and bold fashion forward pieces

• First entered the UK market in 2013 with a launch in London

• Higher pricing compared to US

• 7 stores in the London area

New entrants

13

9

16 15

21 20

0

5

10

15

20

25

21 20

16 15

13 9

Oliver Bonas Rapha

Reven

ue

(£m

)

Small UK brands revenue and store roll out, 2012-2014

2012 2013 2014

CAGR 23.1%

CAGR 12.8%

“We are passionate

about sweating every day

and we want the world to know it”

“We side with style over

fashion”

PwC

February 2016

Appendix


PwC

February 2016

PwC believes the “premium lifestyle” market will continue to outperform the overall clothing, footwear and accessories market in the UK


Note: 1Mintel market forecast excludes footwear

Source: Verdict (2015), Euromonitor (2016), Mintel (2015), Company Accounts, PwC Analysis

Forecast methodology

Pr

em

ium

li

fes

tyle

m

ar

ke

t

PwC’s forecast is built using the historical rate of market share gain of the premium lifestyle market against the overall UK clothing, footwear and accessories market. The forecast takes into account the increasing maturing of the market segment and the increased rate of growth of the overall market based on Verdict

Clo

thin

g,

foo

twe

ar

an

d a

cc

es

so

rie

s1

ma

rk

et

Verdict’s market forecast is built using retailers’ reported and forecast sales. Forecasts supported by macroeconomic forecasts, individual retailers’ expansion plans and the competitive environment

Mintel’s market forecast is built using the ONS retail sales survey and proprietary Mintel data for consumer spending across clothing and accessories. Mintel’s market definition excludes footwear

Euromonitor’s market forecast is built using qualitative insights from individual retailer data and interviews. This is supported by store checks, trade surveys, desk research and company analysis

Forecast market growth rates, 2014-2020 (CAGR p.a.)

2.0%

3.7%

4.4%

6.6%

Euromonitor

Mintel

Verdict

PwC "premium lifestyle" market

PwC

February 2016

To estimate the size of the UK “premium lifestyle” clothing market, PwC has made assumptions on what share of total revenue for each brand is from premium lifestyle products, and the wholesale proportion for each brand


Brand FY end20141 UK

revenue (£m)% addressable

products%

wholesaleComments

Aigle Dec 5.0 100% 90% Based on lack of UK store locations/limited e-commerce

Barbour Dec 90.6 100% 90% Based on limited UK store presence/limited e-commerce

Boden Dec 126.3 100% 0% Based on lack of wholesale partners

Cath Kidston Mar 84.9 20% 25% Based on Retail Week estimates and company accounts

Crew Clothing Oct 57.7 100% 20% PwC estimate

Fat Face May 201.1 100% 20% PwC estimate

Gant Dec 47.7 100% 57% Based on company accounts

Hunter Dec 36.8 100% 90% Based on company accounts/limited e-commerce

Jack Wills Feb 120.9 100% 0% Based on lack of wholesale partners

Joules May 105.9 100% 20% PwC estimate

Laura Ashley Jan 273.9 17% 5% Based on annual report

Musto Dec 21.8 100% 78% Based on company accounts from 2008 (constant level assumed)

Oliver Bonas Nov 30.3 70% 0% PwC estimate based on store visits

Ralph Lauren Mar 205.0 100% 40% Based on press releases

Rapha Feb 19.7 100% 0% Based on lack of wholesale partners

Seasalt Jan 28.2 100% 25% Based on company accounts from 2010 (constant level assumed)

Supergroup Apr 285.0 100% 31% Based on annual report

Ted Baker Jan 297.8 100% 21% Based on annual report

The White Company Mar 152.9 100% 0% Based on lack of wholesale partners

Tommy Hilfiger Jan 49.7 100% 0% Only UK retail sales reported in accounts

White Stuff May 126.5 100% 20% Based on company accounts from 2010-11 (constant level assumed)

Note: 1Annual revenue matched to calendar year where year end falls part way through a calendar year (e.g. May 2014 year end allocated to 2013, Nov 2014 year end allocated to 2014)

Source: Company accounts, Retail Week, Trade Press

PwC

February 2016

www.pwc.co.uk


This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, PricewaterhouseCoopers LLP, its members, employees and agents do not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.

© 2013 PricewaterhouseCoopers LLP. All rights reserved. In this document, “PwC” refers to PricewaterhouseCoopers LLP (a limited liability partnership in the United Kingdom) which is a member firm of PricewaterhouseCoopers International Limited, each member firm of which is a separate legal entity.

The UK “premium lifestyle” clothing, footwear and accessories market

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